Investigating the Relevance of Adopting Balanced Scorecard as a Strategic Tool for Measuring Financial Performance

“The balanced scorecard should translate a business unit’s mission and strategy into tangible objectives and measures. The measures represent a balance between external measures for shareholders and customers and internal measures of critical business processes, innovation and learning and growth. The measures are balance between outcome measures, the results of past efforts, and the measures that drive future performance. And the scorecard is balanced between objective, easily quantified outcome measures and subjective, somewhat judgmental, performance…”

Introduction- To be competitive, organizations must be both strategic and tactical to the nth degree, must be proactive rather than reactive, and must find a way to measure this easily and accurately. One way to accomplish this is through a Balanced Scorecard approach; a tool often viewed as one of the best tools that helps organizations translate strategy into performance. In general the BSA (Balanced Scorecard Approach) allows for a clear strategic and tactical directions for the organization, retains financial measurements in a summation along with their links to performance, and highlights an important and robust measurement system that links and integrates customers, stakeholders, processes, resources, and performance into single measurement strategy.

A balanced scorecard is the comprehensive collection of ongoing activities and processes that organizations use to systematically coordinate and align resources and actions with mission, vision and strategy throughout an organization making it a strategic planning and management system. (Balanced Scorecard Institute, 1998-2010). The scorecard exposes financial, customer, employee learning and growth, and internal business process objectives crucial to attaining goals of the vision and mission statements. When establishing such objectives, an evaluation of the company’s vision statement, mission statement, and furthermore, core values is

The Balanced Scorecard (BSC) is thoroughly sustainable. Because when the proper management can be done and when the formulation process can be done impeccably, then the sustainable Balanced Scorecard (BSC) can be incorporated. There are some sorts of features that may help in maintaining the sustainability. The perspectives should also be well–formulated. The financial and customer’s attitude helps in maintaining the total business organization perfectly and then the internal business process can be run in a perfect manner so that the sustainability can be measured. Besides, the point is the Balanced Scorecard (BSC) is sustainable universally and it can be used in any moment to pursue the performance measurement activities.

This report focuses on the application on one such framework, the balance score card, designed to enhance strategic performance in an organization. .Originally developed and recognised as a performance measurement tool but since incoporation of many ideas, the scorecard is now linked increasingly with strategy execution. Till today

The goal of this essay is to focus on theory and implementation of the Balanced Scorecard system. Because of the structured generic approach of the methodology, the Balanced Scorecard has gained its popularity as means of evaluating performance and reporting quantitative performance results. The balanced scorecard is a strategic planning and management system that is used extensively in business and industry, government, and nonprofit organizations worldwide to align business activities to the vision and strategy of the organization, improve internal and external communications, and monitor organization performance against strategic goals (The Balanced Scorecard Institute, 2014). The Balanced Scorecard is the most prevalent and adopted of the several strategic performance tools since the early 1990s. In addition, the derivatives of the Balanced Scorecard such as Performance Prism and Results Based Management have also gained prominence in the field of strategic performance management and improvement. The Balanced Scorecard commenced as a performance management tool that incorporated strategic non-financial performance measures to the conventional financial indicators in order to provide managers and company executives with a somewhat “balanced” view of the aspect of organizational performance.

The balanced scorecard (BSC) is an extensively used performance measurement tool introduced to take the strategy and vision of the business into real action from four perspectives: financial, customers, internally progress and learning and grow. (Kaplan and Norton, 1996) From all these four perspectives, it can be seen that this measurement tool is different from others because it concentrates on both financial and operational information rather than only financial figures which make the tool provide a more comprehensive of the business to shareholders and customers. In these years, BSC has developed from the performance measurement tool to a strategic management system. ( Kaplan and Norton, 1996, p 37) However, this essay aims at introducing the balanced scorecard as a performance measurement from its origins, why business needs it, how it can be utilized, how the business can get benefits from adopting this measurement tool and what potential problems and limits it has.

Developed by Kaplan and Norton, the balanced scorecard or the BSC is a management tool which enables organisations to clarify their goals and strategies and translate these strategies into action. Relying on financial measures become obsolete, hinders companies to create value, and may give misleading signals for improvement. (Kaplan and Norton, 1992) The main purpose of the BSC is to overcome the reliance on financial performance. Kaplan and Norton developed this approach to emphasizes that both financial and non-financial measures should be the part of the organisation. The balanced scorecard is not only a performance measurement system but also strategic planning and management system that

The scorecard addresses a serious deficiency in traditional management systems: their inability to link a company’s long term strategy with its short-term actions. Managers using the balance scorecard do not rely on short-term financial measures as the sole indicators of the company’s performance. The scorecard introduces four new management processes that, separately & in combination, contribute to linking long-term strategic objectives with short term actions.

“Balance Scorecard is a flexible, not a narrow model, approving various organization to identify key performance pointers that support their strategy”. It is applied to every sector of organisation, rather public or private, to align for people, planning and task performs.

This essay presents an analysis of the way in which Tesco implement the balanced scorecard. The strengths and hindrances associated with this approach have also been outlined with respect to this particular case study. The 4 perspectives of the balanced scorecard are examined in detail, the conclusions of which are later divulged.

The business world revealed the drawbacks and limitations of the traditional financial view in organization performance. This led the organizations to adopt and try different approaches for performance measurement (Otley and Fakiolas, 2000). The balance scorecard has been the performance management center of attention from both the industry and academia. It has been globally adopted by both the private and the public sector around the world (Kaplan and Norton, 2001).

“The Balanced Scorecard translates a company's vision and strategy into a coherent set of performance measures” which was defined by Robert S. Kaplan, David P. Norton (1996).

The Balanced Scorecard is the most popular approach used to measure performance. The balance scorecard was developed by Kaplan and Norton in 1992 to help the weak and vague performance management strategies (Kaplan & Norton, 1992). The balanced scorecard looks at measures and objectives of the organizational performance from four aspects: Financial, customer, internal processes, and learning and growth (12 Manage, 2009).

The balanced scorecard was developed by Dr. Robert Kaplan and David Norton. It was initially introduced as a tool for multidimensional performance management. But over the years it has evolved into a framework for strategic planning and management. It is a performance evaluation framework which augments the performance measures related to the non-financial aspects to traditional financial metrics to give executives. Thus companies can monitor the financial aspects while simultaneously keeping in check the progress on capabilities, intangible assets acquired for the future growth. Thus the managers and the executives have a 'balanced ' view of the organization’s performance.